Opening a Franchise vs. Independent Restaurant

When it comes to franchising, restaurants are some of the first businesses that come to mind for many people. And these brands dominate as some of the top restaurants around the world today. On the other hand, for many people, their favorite restaurant may be a local spot in town that cannot be found anywhere else. 

So, what is the best route to take when opening a business? Both independent and franchise restaurant brands can be viable, profitable opportunities for aspiring entrepreneurs. But they are certainly different in many ways. Franchises, for one, are focused on a replicable system, said Robin Gagnon, CEO and co-founder of We Sell Restaurants, a business broker franchise focused on the sale of restaurants. 

“When it comes to running a successful franchise business, efficiency is key,” she said. “So, there’s already built in management of food costs, understanding of labor hours, control of operations—all the critical elements to deliver every single time. The heavy lifting is done for you.” 

Meanwhile, independent restaurants are more of a learn-as-you-go game. Instead of relying on a model that is provided to you, opening an independent restaurant means experimenting with menus, evaluating costs and figuring out a labor system that works. 

“Buying a franchise versus an independent restaurant just shortens that learning curve immensely,” added Gagnon. “So you go right into profit making as soon as possible in a challenging environment.” 

Financial Differences

Starting a business of any kind requires a significant amount of money, but costs can vary considerably between franchises and independent restaurants. For example, the initial startup costs are typically lower for opening a franchise location than an independent restaurant due to a higher access to capital. Franchising also requires specific and ongoing financial fees, while opening an independent restaurant gives an owner more control over the budget. 

Financial differences also come into play when it comes time to sell a restaurant. Gagnon pointed to a study from Palm Beach Atlantic University’s Marshall E. Rinker Sr. School of Business that examined 2,159 business resales over a 10-year period. The researchers found that franchise businesses sold at a 1.5 times higher price than non-franchise businesses.

“Franchising not only shortens the learning curve going in to get to greater profitability, but you realize more from the investment on your exit as well,” Gagnon noted.  

The Pros and Cons

Like many things in life, there are upsides and downsides to both business opportunities that aspiring restaurant owners should take into consideration.

“The pros to a franchise would be efficiency and a quick start-up time,” said Gagnon. “There’s also brand recognition and access to some capital and resources. I would say the cons would be limited ability to modify the existing scenario and potentially higher costs, depending on the start-up costs for the brand.” 

When it comes to independent restaurants, one of the top pros is the ability to have more ownership over the model. 

“There’s also a lot of flexibility that, if something does not work, owners can terminate and move on. Franchises, by contrast, are typically tied to a 10-year agreement. So you’re agreeing to do it their way for 10 years.” 

Which One Is Right For Me? 

There are opportunities for success in both opening a franchise restaurant and opening an independent restaurant. Gagnon noted that successful franchisees follow the path prescribed by the franchise. This means that franchises are a great route for those willing to trust in the plan set forth by the franchisor. 

“However, many people are too entrepreneurial for that mindset,” noted Gagnon. “So, if you’re the type to want to go in and change up the menu or change how the logo looks, I would say to avoid a franchise and go out and build a concept of your own.”